Shares of Tilly’s, Inc. TLYS gained 3.2% in after-hours trading on Aug 28, following the second-quarter fiscal 2019 results. During the quarter, both top and bottom lines exceeded the Zacks Consensus Estimate.
Although the company started the quarter on a soft note, it eventually gained momentum with strong comps in June and July. Also, it witnessed sturdy advancement in the e-commerce realm. Moreover, solid margin sales and the better-than-expected bottom line contributed to the quarterly results. Going ahead, management is optimistic about the fiscal third quarter and the second half of fiscal 2019 on the back of continued momentum witnessed during the back-to-school season.
We note that this Zacks Rank #3 (Hold) stock has gained 4.8% in the past three months against the industry’s decline of 20.4%.
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Q2 Highlights
The company reported adjusted earnings of 31 cents per share in the reported quarter, which surpassed the Zacks Consensus Estimate of 20 cents. However, the figure declined 6.1% year over year.
Sales came in at $162 million for the reported quarter, increasing 2.8% year over year and beating the Zacks Consensus Estimate of $156 million. Comps inched up 0.6%, marking the 13th consecutive quarter of flat-to-positive comps growth. Moreover, online sales increased 15.7% year over year, accounting for 14.1% of total sales in the quarter. Solid comps performance in footwear, and boys’ and men’s accessories during the quarter contributed to sales growth, while women’s and girls’ businesses remained drab.
Gross margin was 32%, which expanded 20 basis points year over year on account of lower buying and occupancy costs, as a percentage of net sales, which more than offset elevated e-commerce shipping costs related to e-commerce sales growth. Additionally, SG&A expenses increased 5.3% to $39.6 million mainly due to the elevated marketing and fulfillment expenses of about $1.0 million related to e-commerce sales growth and rise in store payroll expenses of roughly $0.9 million. As a percentage of sales, SG&A costs went down from 23.9% to 24.5%.
Operating profit declined 3.2% year over year to $12.1 million. However, adjusted operating margin contracted 43 basis points to 7.5%. This decline can be attributable to prior year's legal matter credit to the tune of $1.5 million.
Notably, the company has opened one store in the quarter and closed one. At the end of the quarter, Tilly’s had 229 total stores, up from 226 in the prior-year quarter.
Other Financial Updates
The company concluded the quarter with cash and cash equivalents of $62.3 million and shareholders’ equity of $174.4 million. Net cash provided for operating activities for six months ending Aug 3, 2019, was $14.1 million.
Tilly's, Inc. Price, Consensus and EPS Surprise
Guidance
Management issued guidance for third-quarter fiscal 2019. Taking the recent and historical trends into account, the company anticipates sales of $151-$156 million, driven by expected comps rise of 1-4%. Adjusted earnings per share are expected to be 18-22 cents, up from 29 cents reported in the prior-year quarter. The company projects operating income to be $6.5-$8.5 million. It also expects an effective tax rate of approximately 27% for the third quarter.
We note that comps rose 4.2% through Aug 26. Also, women’s business turned positive, courtesy of robust performance in recent weeks.
For the fiscal third quarter, the company intends to open four stores, out of which it has already opened one. It further plans to open seven stores in the fourth quarter before Thanksgiving, thereby bringing the total number of stores opened in fiscal 2019 to 13. Capital expenditures for the fiscal year are expected to be nearly $20 million.
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